This copy is for your personal non-commercial use only. To order presentation-ready copies of Toronto Star content for distribution to colleagues, clients or customers, or inquire about permissions/licensing, please go to: www.TorontoStarReprints.com

Canada-US price gap narrows, BMO reports

The Canada-U.S. price gap has narrowed but Canadians are still paying more than fair value, BMO Capital Markets says.

Because of the persistant price gap, more Canadians are crossing the U.S. border to shop, contributing to an $18 billion deficit in tourism, or roughly 1 per cent of Canada’s gross domestic product, the report says. Meanwhile, fewer Americans come to Canada.
TORONTO STAR

The Canada-U.S. price gap has narrowed but Canadians are still paying more than Americans for diapers, running shoes, cookware and many other every day goods, a report by BMO Capital Markets says.

Canadians are current paying about 10 per cent more than Americans, the report by BMO chief economist Doug Porter found. That’s down from an estimated 14 per cent price gap a year and a half earlier, in May 2012.

But the gap is still too wide, resulting in thousands of Canadians flocking across the border for better deals, the report by BMO chief economist Doug Porter found.

Baby items cost 34 per cent more in Canada, running shoes are 19 per cent higher, and hardware prices are 14 per cent above the U.S., the bank economist’s random survey found.

The price gap has been a sore point with consumers ever since the Canadian dollar soared above the U.S. greenback in 2007 for the first time in three decades.

Article Continued Below

Canadian retailers say prices are higher here in part due to higher labour costs, rents, import duties and suppliers’ prices than in the U.S. A relatively small population spread over a vast geography costs more to service.

BMO found most of the narrowing in the price gap over the last six years is due to the decline in the value of the Canadian dollar relative to the U.S. greenback.

At 95 cents (U.S.) on average, the loonie is still trading above fair value, acting as a drag both on Canada’s tourism and manufacturing sectors, the report argues.

“While the highflying currency has lost some altitude in the past year—it’s down about 4 per cent this year—the slide has largely stalled in recent months at levels still above what we would consider fair value,” the report says.

To eliminate the price gap completely, the Canadian dollar would have to fall to 88 cents U.S., Porter said in interview.

Apart from the currency, the price gap between the two countries is narrowing, very gradually, the report found.

Some of the most controversial sectors, autos and books, have seen the greatest declines in the past six years, largely in response to public pressure, Porter said.

However, the “much ballyhooed” entry of retailer Target Inc. into Canada appears to have had limited impact on the Canada/US price gap, the report found.

Ottawa’s attempt to reduce the price gap by cutting import tariffs on some items – including baby clothes and hockey gear -- have had only a limited impact on overall pricing, the report also found.

The result is more Canadians are crossing the border to shop, contributing to an $18 billion deficit in tourism, or roughly 1 per cent of Canada’s gross domestic product, the report says. Meanwhile, fewer Americans come to Canada.

As recently as a decade ago, more Americans visited Canada than Canadians visited the U.S. Now, there’s only one American tourist for every three Canadians hopping across the border.

The high-flying dollar is also the dominant factor in the loss of Canada’s competitiveness in the past decade, the report says.

Canada’s manufacturing output is down 2.6 per cent this year despite soaring U.S. demand for autos – one of Canada’s biggest exports.

Merchandise trade is also headed for a $10 billion deficit this year as Canada imports more than it exports.

“The modest descent in the loonie over the past year relieves precious little of the ongoing intense pressure on domestic tourism and manufacturing,” the report concludes.

With the U.S. economy under a political cloud and the U.S. Federal Reserve Board likely to keep interest rates on hold for longer than expected, the Canadian dollar is like to remain high for some time, the bank predicts.

More from the Toronto Star & Partners

LOADING

Copyright owned or licensed by Toronto Star Newspapers Limited. All rights reserved. Republication or distribution of this content is expressly prohibited without the prior written consent of Toronto Star Newspapers Limited and/or its licensors. To order copies of Toronto Star articles, please go to: www.TorontoStarReprints.com